Fident Capital secured $56MM of construction financing for the development of a mixed-use project containing 77 multifamily units and a 22,000 SF medical office building in the Bankers Hill submarket of San Diego. The senior debt was sourced from a regional bank that provided 70% leverage with a sub-3% rate. The secondary financing came from a private group whose last dollar came to 88% LTC. The balance of equity came from the sponsor, a repeat Fident client over the years. The blended cost for this A/B piece execution was around 6.27%.
This financing presented a myriad of challenges. Chief amongst them was getting capital comfortable with the shared parking, both in terms of capacity and monetization. The sponsors’ 167 parking stalls are mechanized and shared; permanent parking goes to very few apartment tenants on a 24/7 basis so that the medical office tenants can be provided 3 per thousand parking spaces during the workday, via a valet service. This thoughtful use of the parking resource proves highly lucrative but requires considerable explanation for both capital and the appraisal community. The asset, long held by the borrower, had been positioned to create incredible value through the use of lot tie agreements that allowed parking for all three buildings to be housed in only one of the three structures. While this sharing of resources across all components was accretive to the project’s returns, it presented the additional challenge of mobilizing and syncing the start of two different general contractors and two different pieces of capital across three different uses (multifamily, ground floor commercial, and medical office).
A final challenge was related to the fact that the property benefited from San Diego’s Complete Communities Housing Plan, which allowed for significant density bonuses. Explaining these deed restrictions – and the fact that we could fulfill the obligation to provide the rent restricted units off-site, post-close and prior to Certificate of Occupancy – took a lot of communication and finesse. Finally, the medical office building was 100% leased to a credit tenant, UCSD, who was unable to move at the speed of the deal, creating a bit of a gap between what they said they were going to do (occupy 100% of the space) and the objective status of the deal at close (77% leased).
Top-flight sponsorship, strong credit, very high-quality real estate, and the remarkable rent growth, job creation, and favorable demographics of the San Diego market provided an abundance of choices for the project’s financing. However, but for the tenure and professionalism of those brought to the table, the project may not have closed as smoothly and as timely as it did. We are thrilled have been a part of this successful close and the creation of what is sure to be a trophy asset within Bankers Hill for years to come.
